Office Market Overview Report: Part Three – New York City Office Market

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• New York City Office-Using Employment
• New York City Overall Concession Ratios Rose for Four Consecutive Quarters in 2023
• New York City’s Concession Ratios Are Comparable Across Building Classes in 2023 and Above Five-Year Average
• NYC Market Rent Index Shows Increase From 2021 Trough but Remains Below 2019 Levels

In this segment of our Office Market Overview Report, CompStak evaluated office market statistics for New York City in particular and uncovered the following major findings.

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• Effective rents for closed lease transactions in New York City’s Prime Class A buildings reached a peak in the beginning of 2023 but have dipped in subsequent quarters, while still outpacing 2019 figures. Meanwhile, Class B/C effective rents have increased slightly throughout 2023.
• Lease terms for Prime Class A space have rebounded the quickest to pre-2020 levels. However, the average lease terms for Class B/C transactions in 2023 are still below 2019 levels and have largely plateaued since at least the end of 2021.
• New York City office-using employment is down 2% from its post-pandemic peak but still exceeds its pre-pandemic level for now, boosted by Financial Services and Professional Services employment levels, according to the Bureau of Labor Statistics (BLS).
• Levels of concessions given to New York City transactions remain well above pre-pandemic levels, and during 2024 the average concession ratio reached 12.1%, outpacing the five-year average by 1.9 percentage points.
• FIRE, followed by TAMI tenants, accounted for the largest share of Manhattan office relocations, according to data tracked by CompStak since April 2020. A majority of the relocating tenants in the FIRE and TAMI sectors moved to newer buildings, with a 60% and 57.5% share, respectively.

New York City Office-Using Employment

New York City’s office-using employment figure, once a bellwether for future space demand, peaked post-pandemic in December 2022. Since then, it has declined by approximately 2%, though it remains 2% higher than January 2020 levels. Among the traditional office-using sectors, Financial Services and Professional and Business Services are within 1.6% and 0.7% of their post-pandemic peaks, respectively.

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New York City Overall Concession Ratios Rose for Four Consecutive Quarters in 2023

New York City’s average ratio of concessions to the total deal value (defined as the value of the free-rent period plus tenant improvement allowance over the total rent paid) has remained above the five-year average since the third quarter of 2021. While gateway markets overall have stayed stable, the concession ratio in the New York City market has consistently increased throughout 2023. Concession ratios are significantly higher for new deals compared to renewals, with the quarterly average in 2023 surpassing 2019’s average by more than 3.5 percentage points for new deals and 1.9 percentage points for renewals.

New York City’s Concession Ratios Are Comparable Across Building Classes in 2023 and Above Five-Year Average

Breaking up New York City’s average concession ratios across building classes demonstrates that concession ratios are trending similarly across building types, among closed transactions. Across these building classes, concession ratios are up from 2019 levels, with the sharpest increase exhibited in Prime Class A buildings. Concession ratios averaged 9.1% in the non-Prime Class A category during 2019 but were up 2.3 percentage points in 2023. Meanwhile, Class B/C concession ratios are up just 0.7 percentage points over the same period but up 2.6 percentage points from 2018, according to CompStak data. Leases executed by coworking or shared-office provider companies in Class B buildings helped push up values during the 2019 period preceding the pandemic, due to higher-than-market-average work values offered.

NYC Market Rent Index Shows Increase From 2021 Trough but Remains Below 2019 Levels

According to CompStak’s New York City office market starting rent index, there has been an 8% increase from the third quarter of 2008. This growth, however, is overshadowed by the gateway index, which indicates a more significant 27% increase over the same period.

While the gateway office market rent index demonstrates an increase in starting rents from pre-pandemic levels, New York City’s index yields opposite results. The index moved upward from the second quarter of 2021 through the third quarter of 2022 before showing signs of stabilizing. It has yet to reach levels achieved in the quarters just preceding the onset of COVID-19.

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